This years major accomplishments are in the following areas: 1)Role of Bmp2 in mediating semicircular canal formation (manuscript in preparation) The vestibular apparatus that is responsible for detecting angular head movements consists of three semicircular canals and their associated sensory organs, cristae ampullaris. Results from our previous studies suggest that signals such as Bone morphogenetic protein 4 (Bmp4) and Fibroblast growth factors (Fgfs) secreted from the sensory tissue, crista, are important for canal formation by inducing Bmp2 in the canal pouch, which gives rise to the canals. To test this hypothesis further, we investigated the role of Bmp2 in canal formation by generating conditional knockout of Bmp2 in the developing mouse inner ear. Our results show that Bmp2 conditional knockout inner ears are devoid of canals but the cristae are intact. Furthermore, our results show that Bmp2 mediates canal formation by maintaining expression of genes such as Dlx5 and Lmo4 at the rim and negatively regulating genes such as Netrin1 in the resoprtion domain of the canal pouch. 2)Role of Lmx1a in the developing inner ear (manuscript in preparation) Previously, we have shown that Lmx1a is important for inner ear development based on inner ear analyses of the spontaneous mouse mutant, dreher, in which mutations in Lmx1a generated a functional null protein. However, in addition to the otic epithelium, Lmx1a is also expressed in the hindbrain adjacent to the developing inner ear, which has been shown to be important in providing other signaling molecules for inner ear development. To distinguish which source of Lmx1a, expressed in the developing inner ear or hindbrain, is more important for inner ear development, we generated conditional knockout of Lmx1a in the inner ear and our results suggest that inner ear defects reported in dreher mutants are largely due to the loss of Lmx1a functions within the otic epithelium. 3)Developmental mechanisms of balance disturbance associated with deletion of Ephrin-B2 (manuscript in review) Ephrin-B2 (Efnb2) encodes a Type I transmembrane protein and serves as a ligand for multiple Eph receptor tyrosine kinases. The C-terminal intracellular domain of Efnb2 is itself phosphorylated by auxiliary kinases upon its binding to a receptor, leading to activation of second messenger activity in the ligand-bearing cell. Previous work found strain-specific circling and dysregulation of K+ homeostasis in adult mice with heterozygous deletion of the Efnb2 C-terminus, but whether these functional deficits are rooted in a disruption of embryonic development has remained unknown. We investigated the potential developmental bases for this disturbance by analyzing fetal ears from mice in which the entire Efnb2 gene is removed by Cre-mediated recombination, as well as from circling and non-circling strains of the Efnb2 C-terminal deletion in the heterozygous and homozygous states. Major progress for the prior twelve months includes the following advances. We found a mis-localization of endolymphatic sac mitochondrial rich cells (ion transport cells) in fetuses of the circling Efnb2 C-terminal deletion heterozygote strain but not in non-circling heterozygote strains, thus correlating this feature of the Efnb2 conditional knock-out with circling behavior. Second, we mapped region-specific patterns of reduced proliferative activity at the otocyst epithelium prior to formation of the endolymphatic epithelium, thus linking mis-localization of inner ear ion transport cells to early-stage defects in epithelial growth. Finally, we conducted an expression survey of all relevant Eph receptor tyrosine kinases, and found evidence for the potential involvement of at least four cognate receptors. 4)Auditory ganglion source of Sonic hedgehog regulates timing of cell cycle exit and differentiation of mammalian cochlear hair cells (manuscript published) An unusual feature of the mammalian cochlear development is that hair cell precursors initiate terminal mitosis from an apical to basal direction along the cochlear duct, whereas the wave of hair cell differentiation is in a reverse direction of base to apex. Thus, post-mitotic hair cell precursors at the apex delay differentiation for several days than their counterparts at the base. This dis-synchrony in timing between terminal mitosis and differentiation is in contrast to neurons in the retina and brain, in which neuronal differentiation follows promptly after terminal mitosis. Using conditional knockout approach in mice, we show that Sonic hedgehog (Shh) emanating from the spiral ganglion regulates the timing of cell cycle exit of hair cell precursors and their subsequent differentiation. We show that a subpopulation of Shh expressing spiral ganglion neurons restricts over time towards the apical region of the cochlear duct during cochlear development, which we postulated to delay hair cell differentiation in the apical cochlea. To test this hypothesis, we generated mouse embryos with conditional knockout of Shh in the spiral ganglion. In these mutants, cochlear hair cell precursors undergo premature but similar apical-to-basal wave of terminal mitosis as the wildtype. However, in the absence of spiral ganglion source of Shh, the wave of hair cell differentiation proceeds in the reverse apical-to-basal direction as predicted by our hypothesis. Whether this change in the timing of hair cell differentiation affects the tonotopic organization of the cochlea remains to be determined. 5)Progression of neurogenesis in the inner ear requires inhibition of Sox2 transcription by Neurogenin1 and Neurod1 (manuscript published) During inner ear development, a poorly-defined neural-sensory competent region is thought to give rise to neuroblasts, which delaminate from the otic epithelium to form neurons of the cochleo-vestibular ganglion. Cells remaining in the neural-sensory competent region are thought to give rise to various sensory patches of the inner ear over time. The molecular mechanisms that specify the neural versus sensory fate are largely not known. Using an electroporation technique to over-express genes that are associated with the neural fate such as Sox2, Neurogenin1 (Neurog1) and Neurod1 in the developing chicken inner ear in ovo, we discovered a general molecular pathway of neurogenesis. We show that Sox2 is likely to promote neurogenesis by upregulating a neurogenic gene, Neurog1. In turn, Neurog1 inhibits Sox2 transcription, which results in the upregulation of another neurogenic gene, Neurod1, and neurogenesis progresses. When Sox2 is overexpressed and its level cannot be regulated, despite the upregulation of Neurog1, NeuroD is not upregulated and neurogenesis fails to proceed.